White House files appeal to save overtime rule

The rule change, which would have gone into effect Thursday, would have expanded the number of workers covered by overtime by an estimated five million. (iStock photo)

The Labor Department filed notice Thursday that it would appeal a court ruling that scrapped the Obama administration's rule that attempted to expand overtime pay for millions of workers.

The 5th Circuit Court of Appeals threw out the administration's new version of the rule last month, stating that only Congress could make such a change and the administration had overstepped its authority.

The rule change, which would have gone into effect Thursday, would have expanded the number of workers covered by overtime by an estimated five million. Business groups and Republicans opposed it, and argued it would have resulted in companies limiting work hours to contain labor costs, leaving workers no better off while also limiting their ability to set flexible work schedules with their employers.

The appeal, filed in a Texas court, doesn't lay out the basis for the challenge but the administration has argued all along that it was merely updating the existing Fair Labor Standards Act, a step that did not require congressional approval. A court rejected that argument in a Nov. 22 ruling, saying that the administration fundamentally changed the rule and only Congress can do that.

"Despite the harmful impact of the overtime rule on small business, non-profits and state and local governments, the DOL continues to charge ahead in the twilight of the Obama administration. Hopefully, the 5th Circuit will take the same view as the judge that imposed a nationwide injunction on the rule," said Trey Kovacs, labor policy analyst for the conservative Competitive Enterprise Institute.

A Labor Department spokesman directed all inquiries to the Justice Department. DOJ spokesman Nicole Navas acknowledged the appeal but said the department had no further comment.

Federal law says wage and hourly employees must be paid time-and-a-half once they work more than 40 hours in a week. However, businesses may exempt workers from the requirement if their duties are "managerial" in nature.

One of the requirements for the exemption is that the worker must make at least $23,000 annually. The administration argued that many employers abuse this exemption by labeling regular employees as "managerial" in order to get out of paying them overtime.

President Obama first called for the rule to be changed in a 2014 executive order. Labor Department formally announced in May that the exemption level would rise to more than $47,000 starting on Dec. 1, which would have covered many more people. The White House projected the change would boost wages for workers by $12 billion over the next 10 years.

"Companies will have a choice to make: Either they pay their workers overtime or they cap the work week at 40 hours. Either way, the worker wins," Vice President Joe Biden told reporters when the rule was announced.

A study released last month by the nonpartisan Congressional Budget Service disputed the administration's estimates. The CBO found that canceling the change would result in a net increase of $2.1 billion in real income for families in 2017. The report said that while the rule change would increase earnings, workers would lose out overall due to higher consumer prices and other economic effects.

The court's rejection of the overtime rule capped a bad November for the administration regarding its efforts to re-write labor and workplace rules. A court rejected an expansion of the disclosure rules regarding legal advice provided to employers, a change that was widely expected to result in many legal firms no longer providing advice at all.

A court also rejected a new federal contracting rule that would have required bidders on contracts above $500,000 to report any labor violations over the last three years, including ones still being contested in court. Critics dubbed it the "blacklisting rule."